As corporations and other organizations push to achieve carbon net zero or meet interim science-based targets, Scope 3 emissions are being increasingly targeted for reduction. This article addresses the complex processes of identifying Scope 3 emissions, the urgent imperative to tackle them, and some of the strategies that are being successfully employed by major corporations and other stakeholders.
The Hidden Majority of Emissions
Emissions are typically categorized into Scope 1, 2, and 3 emissions, providing a framework to understand an organization’s total climate impact. Scope 1 relates to direct GHG emissions that occur during the course of a company’s operations, for example, an industrial furnace that produces steel or the emissions generated by a corporation’s fleet of vehicles. Scope 1 emissions are usually straightforward, easy to identify, and (relatively) simple to quantify.
Scope 2 emissions are those derived from the generation of purchased energy. If a company buys energy from a supplier (including national grids) that uses fossil fuel burning plants to generate electricity, it will have contributed to GHG emissions at source.
Scope 3 emissions are by far the largest category of GHG emissions and are also the least addressed. They arise from indirect emissions across an organization’s entire value chain and can include emissions derived from the goods a company purchases, employee travel or consumer use of a company’s products and services. The elimination of Scope 3 emissions is an urgent priority for businesses, but one that can generate opportunities to streamline operations and develop profitable circular economies.
Understanding and managing Scope 1, 2, 3 emissions is not only essential for regulatory compliance and investor confidence, but also critical for long-term business resilience in a low-carbon economy.
What Are Scope 3 Emissions, and Why Are They So Complex?
Scope 3 emissions come from sources a company does not own or control, such as suppliers, logistics providers, and customers. These emissions typically make up 70–90% of a company’s total footprint. Because data is spread across the value chain, efforts to calculate Scope 3 emissions require strong collaboration and robust methodologies.
The Greenhouse Gas Protocol recognizes 15 separate categories of Scope 3 activities which it defines as occurring either upstream or downstream categories, providing companies with a functional framework to assess and report them. The challenges of accurately identifying and measuring Scope 3 emissions are considerable and the GHG Protocol has created a functional framework and a number of tools to assist companies to meet the challenges.
Upstream Emissions
The GHG categorises 8 types of emissions as occurring upstream from a company’s core operations.
- Purchased Goods and Services
Every product or service that a company buys, from raw materials to office furniture, comes with its own carbon footprint. Judicious purchasing decisions can reduce Scope 3 emissions. - Capital Goods
A company’s long-term physical assets like buildings, machinery and vehicle fleets all generate GHG emissions and add to Scope 3 emissions. - Fuel- and Energy-Related Activities
Not all fuel and energy related activities are categorized as Scope 1 or 2 emissions. Fuels purchased by businesses for their daily operations and transmission and distribution (T&D) losses of purchased electricity all count towards Scope 3. - Upstream Transportation and Distribution
The transport of purchased goods (from upstream sources to a company, their warehousing, and related infrastructure strains, all generate emissions. - Waste Generated in Operations
The disposal of waste almost invariably creates GHG emissions. Third-party disposal and treatment of waste generated by a company’s operations counts towards Scope 3. - Business Travel
Even with advances in videoconferencing technologies, business travel remains essential. When employees travel on company business, (via air, road or rail etc.) the emissions are added to the Scope 3 tally. - Employee Commuting
Similarly, when employees travel to and from work (via public or private transportation) the associated GHG emissions count as Scope 3. - Upstream Leased Assets
Scope 3 is a catch-all for any assets leased by a company (from third parties) that are not included in Scope 1 or 2.
Downstream Emissions
The GHG categorises 7 types of emissions as occurring downstream from a company’s core operations.
- Downstream Transportation and Distribution
When a company’s products are sold downstream, third-party transportation, distribution and warehousing generates Scope 3 emissions. - Processing of Sold Products
When a company manufactures intermediate goods or components, third party processing of the products generates emissions. - Use of Sold Products
When consumers use a company’s product e.g. white goods they continue to generate a carbon footprint throughout their lifecycle. - End-of-Life Treatment of Sold Products
When sold products reach the end of their lifecycle, they require disposal. Whether this is landfilling, recycling or incineration, the process will generate some Scope 3 emissions. - Downstream Leased Assets
Any company owned assets that are leased to third parties, and generate emissions, fall under the company’s Scope 3 responsibilities. - Franchises
Franchises are directly comparable to leased assets when companies calculate their Scope 3 emissions. Any company-owned franchise operated by a third party falls under the company’s remit. - Investments
When companies make investments e.g. from equity, debt or by financing projects, any emissions generated as a consequence of the investments are attributable to the company.
Why Scope 3 Emissions Matter for Business and Climate Action
As public awareness of Scope 3 emissions grows, corporate policies towards reducing their emissions are coming under increasing scrutiny. Unaddressed Scope 3 emissions can damage a company’s reputation, lower ESG ratings, and lead to financial risk. In contrast, businesses that develop comprehensive strategies to manage their Scope 3 emissions are better positioned to meet stakeholder expectations, form strategic partnerships, and access new markets.
There are several global standards that guide companies in measuring and addressing Scope 1, 2, 3 emissions, including ISSB, CSRD, SBTi, and TCFD. The CSRD, for example, is a mandatory EU directive that applies to companies based or operating within the bloc.
For multinationals, these frameworks provide useful tools to align climate strategies across jurisdictions — and early adoption can give companies a competitive edge as regulatory requirements evolve. Many companies also provide detailed disclosures through sustainability or ESG reports to demonstrate transparency and progress on Scope 3 reduction strategies
Major globally recognized standards are a useful tool for multinational companies that operate across multiple jurisdictions. It’s possible that there will be greater uniformity between regulatory frameworks over the next decade.
Corporations across sectors — from industrials to agriculture and materials — are actively implementing scope 3 emission reporting and reduction strategies. In 2024, ICL Group, for example, has completed third-party assurance of its Scope 3 inventory and expanded its reporting categories in line with evolving best practices, while implementing advanced data systems to improve monitoring and decarbonization strategies
Opportunities to Act Across the Value Chain
A corporate decision to act across the entire value chian and create a comprehensive Scope 3 reduction strategy is a significant step that requires detailed planning. Often, the starting point is a company-wide education initiative — beginning at board level and extending across employees and key stakeholders — to build shared understanding of Scope 3 categories and their climate impact.
The first priority is typically a detailed evaluation of the extended value chain. Companies may establish a dedicated team or engage expert consultants to map emissions hotspots, estimate impacts, and set priorities for action. Tools aligned with the GHG Protocol Scope 3 standard help organizations structure this effort and support efforts to calculate Scope 3 emissions accurately.
A broad initiative of this complexity requires effective communication and engagement with suppliers, customers, and logistics partners. Winning the support and cooperation of stakeholders can substantially simplify both the development and the implementation of a strategic Scope 3 policy.
Strategies might include eco-friendly product design, use of low-carbon materials, smarter logistics (including electric vehicles), and digital tools that optimize processes to reduce emissions and waste. Innovation thrives in environments that encourage collaboration, experimentation, and employee-led initiatives — rather than rigid perfectionism or top-down mandates.
A Path Forward: From Disclosure to Decarbonization
Adherence to a Scope 3 regulatory framework, whether through voluntary standards like SBTi or mandatory directives like CSRD, should not be seen as an added burden or bureaucratic obstacle. Instead, it offers companies a unique opportunity to map and reevaluate their value chains. Comprehensive Scope 3 carbon emissions strategies can drive decarbonization while streamlining and optimizing outdated operations.
Advances in clean technologies — from renewable energy microgrids to circular economy solutions — are enabling companies to redesign systems for sustainability and resilience. Many of these innovations fall under the broader field of climate tech, which plays a vital role in supporting corporate decarbonization strategies.
Environmental responsibility initiatives and transparency frameworks are essential for turning Scope 3 disclosure into meaningful action.
A bold Scope 3 emissions approach can enhance ESG performance, strengthen stakeholder trust, and improve long-term competitiveness.
Far from being just a compliance exercise, Scope 3 emission reporting represents a transition to a future-ready business model. It supports innovation and positions companies to take leadership roles in their industries as they build more resilient, low-carbon operations.
Conclusion: Leading Beyond the Factory Fence
Given that Scope 3 emissions represent a defining issue for credible climate leadership, businesses that embrace full value-chain accountability and systematic change are well positioned to thrive in a low-carbon economy. Positive Scope 3 carbon emissions performance is set to become an increasingly important ESG benchmark, providing a powerful signal of corporate resilience and responsibility.
Reducing Scope 1, 2, 3 emissions is a complex challenge that transcends traditional divisions between industry, manufacturing, and service sectors. Yet it also presents a unique opportunity to innovate, strengthen competitiveness, and lead in the transition to a more sustainable global economy.
